BoE shift is Pound positive
Quote of the day: “The only place success comes before work is in the dictionary”
Morning mid-market rates – The majors
July 23rd: Highlights
- BoE minutes show 9-0 vote for no change
- US Existing Home Sales beat forecasts
- NZ cut interest rates again
- Greek MP’s approve bailout reforms
- UK retail sales could impact GBP exchange rates
The release of the Bank of England minutes helped push Sterling higher yesterday morning. Although the vote showed no change, there was an apparent shift in tone, which is exactly what the market was looking for. Concerns were raised that inflationary pressures are rising and there were comments suggesting that if Greece was excluded from their decision, the decision is becoming ‘more finely balanced’ now. There were also efforts to talk down the value of the Pound, citing ‘‘The committee discussed how to weigh these contrasting movements. The loosening in credit conditions would have supported domestic demand. But the appreciation of the exchange rate could have an adverse impact on the balance of growth in the economy and had occurred despite the large current account deficit”. For now, we’ve still not seen any vote for an increase, but I’m sure the Hawks will soon change that in the coming meetings.
GBP/EUR is currently trading around 1.4250 and GBP/USD is around 1.5655. Analysts suggest that Cable could spring back to $1.60 levels if a rate hike kicks in as early as November, but until one central bank makes the first move, the rates are likely to remain range-bound.
Today, we have UK mortgage approvals due, but the main focus will be Retail Sales data, which will provide a timely update and add a little more clarity to the inflationary pressures cited in the minutes – consumer spending makes up a large proportion of GDP.
Greece has taken a crucial step towards a bailout after its parliament passed a second set of reforms. The passage of the measures means that negotiations on an €86bn European Union bailout can begin. The reforms include changes to Greek banking and an overhaul of the judiciary system. It is likely that the Creditors will visit Athens soon, to keep an eye on how these reforms will be implemented – keen to ensure all the measures are acted on appropriately.
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The US received a boost yesterday with the release of Existing Home Sales, which beat forecasts and hit an 8-year high. Such positivity adds weight to the interest rate debate, which is dollar-positive. Today, the market will keep an eye on US Chicago Fed Index and US Jobless claims but it will be more interesting to see if this momentum runs through to next week, when we see Q2 GDP and unemployment data, both of which are key data points within the rate debate. EUR/USD dropped to lows of 1.0875
Overnight, the RBNZ cut interest rates by 0.25% for the second meeting on the trot, putting NZ rates at 3%. The bank’s comments that followed included suggestion they felt currency depreciation will be providing support to both import and export sectors, which is positive news domestically.
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